M&G Real Estate Finance, one of the leading European institutional debt fund lenders, has seen a significant fall-off in lending in 2016.
John Barakat, M&G Investments’ head of real estate finance, said the manager had closed about £500 million of financings in Q1 2016 but “less than £100 million” in Q2. Last year M&G deployed £2.2 billion in commercial mortgages.
Lynn Gilbert, head of senior real estate lending, who with Barakat was speaking at a briefing for journalists this week, said property investors are “watching now, and waiting” in the run up to the UK European Union referendum on 23 June.
M&G typically originates large whole loans of £50 million-£100 million upwards which it allocates internally to clients and funds with different risk/return objectives.
Last year’s £2.2 billion deployed was a record. The volume was spread across diverse property sectors in 24 deals in the UK, Belgium, the Netherlands, France and Germany. About £1.7 billion was senior debt for M&G’s Prudential insurance parent’s balance sheet and third party clients, and some £500 million to its stretch senior/junior and mezzanine debt funds.
Barakat said that the UK EU referendum was having “an increasing impact” as it got closer, with acquisition and refinancing activity having slowed. Gilbert said she believed that many investors considering refinancing had either completed them in Q1 or were now waiting and watching to see what the impact of the vote would be.
Barakat stressed that M&G’s is “a long-term business” which does not chase quarterly volume and that 2015 was an exceptionally busy year. “We’re not going to worry about one quarter versus last year’s,” he said. He added that the team had also just agreed a £150 million portfolio financing.
The slowdown in capital value growth which began last year in the UK is also having an effect on the lending market. Barakat and Gilbert said that one manifestation was increasing borrower interest in locking in low interest rates for longer via longer-term fixed loans. “Borrowers are saying: ‘Interest rates are at such a low level and maybe values aren’t rising so fast that maybe I don’t mind locking in for a longer term.’”
Barakat also predicted that 2016 would see the lowest European CMBS issuance since the market started in the 1990s. He said last year, M&G had been able to benefit by buying “a couple of things” at a discount from investment banks which had inventory they had not been able to securitise.